The Toro Company (TTC)

Outdoor equipment company Toro (NYSE:TTC) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 2.2% year on year to $1.13 billion. Its non-GAAP profit of $1.24 per share was 2.1% above analysts’ consensus estimates.

Company Overview

Ceasing all production to support the war effort during World War II, Toro (NYSE:TTC) offers outdoor equipment for residential, commercial, and agricultural use.

Agricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.

Competitors offering similar products include Deere (NYSE:DE), Alamo (NYSE:ALG), and Lindsay (NYS:LNN).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, The Toro Company’s sales grew at a mediocre 6.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. The Toro Company’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.4% annually. The Toro Company isn’t alone in its struggles as the Agricultural Machinery industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

The Toro Company also breaks out the revenue for its most important segments, Professional and Residential , which are 82.3% and 17% of revenue. Over the last two years, The Toro Company’s Professional revenue (sales to contractors) averaged 1.9% year-on-year declines while its Residential revenue (sales to homeowners) was flat.

This quarter, The Toro Company missed Wall Street’s estimates and reported a rather uninspiring 2.2% year-on-year revenue decline, generating $1.13 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

The Toro Company’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 33.9% gross margin over the last five years. Said differently, The Toro Company paid its suppliers $66.05 for every $100 in revenue.

The Toro Company produced a 33.7% gross profit margin in Q2, down 1.7 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

The Toro Company has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.3%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, The Toro Company’s operating margin decreased by 4.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, The Toro Company generated an operating margin profit margin of 5.7%, down 7.1 percentage points year on year. Since The Toro Company’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

The Toro Company’s decent 8.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For The Toro Company, its two-year annual EPS declines of 4.1% mark a reversal from its five-year trend. We hope The Toro Company can return to earnings growth in the future.

In Q2, The Toro Company reported adjusted EPS of $1.24, up from $1.18 in the same quarter last year. This print beat analysts’ estimates by 2.1%. Over the next 12 months, Wall Street expects The Toro Company’s full-year EPS of $4.26 to grow 6.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

The Toro Company has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 7.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that The Toro Company’s margin dropped by 5.6 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

The Toro Company’s free cash flow clocked in at $207.2 million in Q2, equivalent to a 18.3% margin. This result was good as its margin was 3.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although The Toro Company hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 20%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, The Toro Company’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

The Toro Company reported $201 million of cash and $1.14 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $586.3 million of EBITDA over the last 12 months, we view The Toro Company’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $30.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 5% to $76.62 immediately after reporting.

Updated: December 4, 2025 at 10:27 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in The Toro Company.

We cheer for all companies making their customers lives easier, but in the case of The Toro Company, we’ll be cheering from the sidelines. For starters, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its cash profitability fell over the last five years.

The Toro Company’s P/E ratio based on the next 12 months is 15.6x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $92.60 on the company (compared to the current share price of $71.32).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.